Ok you guys have won. I am tired of contributing anything to this board. I (Naively) was hoping for a logical, constructive conversation about crypto on probably what I thought was the best FI board on the internet. The community that is mostly responding to this thread now is hostile and too emotional for useful discussion.

Edit: I am wrong to say the whole community. There is a large percentage of people who are amazing, thoughtful, and actually trying to help others get to FI. Those are the virtuous people who make this community great. The thread started out well and there are many people trying to help out and provide useful information. I wish I could isolate to just those posters, but I cannot and it seems like now if you post ANYTHING positive on this thread, you get massivly attacked.

Sounds like the same old arguments for the internet in the 90s. Ya right, chat room is really going to revolutionize society. Napster is for theives, nobody wants a lower quality MP3 if they can get a CD. Shopping online? Why would I do that when I have to pay shipping, wait a day or two, and I can just drive to the store? What a stupid idea...

Most people just do not have the time or energy to understand why it is so important. This is normal and ok. Eventually, you will understand when it is the backbone of society. Early adopters that see the potential want others to prosper, especially on this board since so many other ideas have helped everyone here towards their journey to FI. Being so negative and closed minded is just hurting others and not logical. I am surprised that this board out of all boards is so closed minded about a potentially disruptive technology that can help many people in the world reach FI... Let's go attack stock options stragegies because that is "complicated", or maybe gold in our asset allocation, or some other useless investments because they are not S&P 500 or bonds. Oh and never EVER mention paying off your house because 100% loan and 100% into S&P fund at 33%+ ShillerPE is the right choice every time.

There is a large percentage of people who are amazing, thoughtful, and actually trying to help others get to FI.

Thanks. Your recognition of my efforts genuinely means a lot to me. Sometimes I feel like I spend all this time and effort trying to help people, and all I get is attacked for it. I'm still here plugging away though, warning people away from bad investments.

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it seems like now if you post ANYTHING positive on this thread, you get massivly attacked.

Yea, I know how you feel. I keep trying to give people helpful advice in this thread, and some of them just get all huffy instead of listening. That's okay, not everyone on the internet actually wants to have a logical and constructive debate. Some people are just here for the confirmation bias.

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Sounds like the same old arguments for the internet in the 90s. Ya right, chat room is really going to revolutionize society. Napster is for theives, nobody wants a lower quality MP3 if they can get a CD. Shopping online? Why would I do that

Funny, I was recently thinking that the crypto hype was much more like the segway hype. It's going to revolutionize the way we organize cities! It's going to bigger than the PC!

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Eventually, you will understand when it is the backbone of society.

I think crypto will be hugely important. Blockchain, not so much.

The backbone of society? That's trust, not encryption.

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I am surprised that this board out of all boards is so closed minded about a potentially disruptive technology that can help many people in the world

What is it about cryptocurrency that you think is disruptive? What industries will be disrupted? I'm just not seeing what all the hype is about. It's a clever software idea, but in it's current form it's poorly implemented and in it's ideal form I still don't see a use case that isn't better served by existing alternatives.

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Let's go attack stock options stragegies because that is "complicated", or maybe gold in our asset allocation, or some other useless investments because they are not S&P 500 or bonds.

We don't attack stock options because they are complicated. We attack gold for the same reason we attack cryptocurrency.

I applaud your enthusiasm and I encourage you to invest your own money in any way you think is wise. You can even come here and tell us all about it. But when you cross the line into trying to convince other people, largely new investors who don't know any better, to invest their money just so that you can make more money? Now you're looking a little shady. You don't seem to understand the fundamentals of crypto as an asset class, as distinct from its fundamentals as a technology, and lots of people have tried to explain the difference to you with little or no success.

But please, continue to offer us your opinions and we will continue to offer you slightly different opinions, and the forum will record our conversation as a record of the points on both sides. If you're right, you'll win fabulous prizes!

Corrected. Pirating != theft, no matter how often the RIAA or similar tries to drown us in that particular bit of propaganda. One is making an illegal copy, one removes the original from the rightful owner and therefore does more damage and is a worse crime.

But yes I agree, Napster was 100% for pirates. Even today although torrenting does have some legitimate use-cases, it's still mostly for pirates and will never replace direct download.

Corrected. Pirating != theft, no matter how often the RIAA or similar tries to drown us in that particular bit of propaganda. One is making an illegal copy, one removes the original from the rightful owner and therefore does more damage and is a worse crime.

But yes I agree, Napster was 100% for pirates. Even today although torrenting does have some legitimate use-cases, it's still mostly for pirates and will never replace direct download.

Agreed, I was just trying to keep consistent language.

Napster is a great comparison to Bitcoin though. It was a new technology (P2P sharing), it popularized use of new technology (mp3s), it became popular because of the benefit for illicit use, it was the top of the pile for a while and then it was supplanted by related new technology (torrents) and was totally unable to make any money in the end despite all that early promise.

If you invested in Napster because you believed in the usefulness of the underlying technology - P2P sharing, you would kinda look like an idiot today. The argument that you should invest in Bitcoin because you believe in the usefulness of the underlying technology - blockchain . . . well, I guess time will tell.

Even today although torrenting does have some legitimate use-cases, it's still mostly for pirates and will never replace direct download.

Torrent downloads should replace free direct downloads in most cases. The best way to publicly distribute large files over the internet is through torrent downloads where the publisher continuously seeds the torrent. If few people are downloading the file, they'll mostly direct download from the publisher; if many people are downloading the file, the peer-to-peer network will relieve strain on the publisher's server and increase throughput for everyone. This is why many Linux distributions use torrents. For large files, the only reason not to torrent is to control who has access to the download.

Torrent downloads should replace free direct downloads in most cases. The best way to publicly distribute large files over the internet is through torrent downloads where the publisher continuously seeds the torrent. If few people are downloading the file, they'll mostly direct download from the publisher; if many people are downloading the file, the peer-to-peer network will relieve strain on the publisher's server and increase throughput for everyone. This is why many Linux distributions use torrents. For large files, the only reason not to torrent is to control who has access to the download.

Even this use case is conceptually flawed in the exact same way that blockchain is. You don't think the big publishers use the same idea as torrents, on the back end of their internal systems? You think YouTube is serving files using DOS?

P2P, like blockchain, was an interesting distribution model that was eventually swallowed up by and disappeared into traditional power structures. It's invisible to the end user, because now that technology has morphed into "the cloud". It's still clever, and still useful, but those early implementations that got so many web fanbois worked up about changing the world with data sharing now look pretty silly in the Facebook era.

I expect blockchain will suffer the same fate. All of the early names will disappear, and the underlying technology will be utilized by big corporations in ways that are not obvious to us now, or to the public in the future. Bitcoin, like Napster, will be another interesting footnote in the history of software development.

Even today although torrenting does have some legitimate use-cases, it's still mostly for pirates and will never replace direct download.

Torrent downloads should replace free direct downloads in most cases. The best way to publicly distribute large files over the internet is through torrent downloads where the publisher continuously seeds the torrent. If few people are downloading the file, they'll mostly direct download from the publisher; if many people are downloading the file, the peer-to-peer network will relieve strain on the publisher's server and increase throughput for everyone. This is why many Linux distributions use torrents. For large files, the only reason not to torrent is to control who has access to the download.

I think you're wrong. Like Sol said, the benefits of a peer-to-peer network are already incorporated and surpassed in Content Distribution Networks that employ geographically distributed datacenter caches. And that is and always will be a better distribution model than true peer-to-peer networking or torrenting. The low latency and high bandwidth of CDN networks (not to mention other features, like cache invalidation if you want to pull something back) will never be matched by torrents that rely on the last-mile connection to Joe Shmoe.

And it will always be cheaper for the companies involved to do it this way too. The bandwidth that ISPs offer consumers is what you'll get on average given their statistical usage models, but it is vastly vastly overcommitted. If everyone started uploading something at once you would not see anything close to your advertised upload speed. It is much cheaper to do things like they are now - with datacenters that have enormous bandwidth that are in close physical proximity to the customers they are serving - that it would be to upgrade everyone in the world's last-mile connection (and all the upstream switches and wires that would have to be upgraded a billion-fold to match).

Linux distributions use torrents because they are free community projects that don't have budget to pay a CDN for their services and so have to settle for the next-best thing, not because they are visionaries that see something that YouTube or Netflix doesn't.

And like GuitarStv said, we shall see, but I can't see how it'll be any different for Blockchain technology. As with torrents there will be a few legitimate long-term use-cases, but there will be better technical solutions for most things.

I'm not sure if this point has been made before, but I have been puzzled as to why supporters of crypto currencies spend so much time trying to argue with crypto currency skeptics.

If the rise of crypto currencies is going to be so utterly disruptive, why wouldn't you simply double down on buying up more and more while they are still 'cheap'?

If the rise of crypto currencies is so inevitable, why bother arguing with a few skeptics on a forum? If crypto currency adoption is so inevitable, you shouldn't really need to argue with the skeptics. They'll simply be proven wrong when the global economy abandons government backed fiat currency once and for all and adopts crypto currency, or whatever the end scenario might be.

I'm not convinced by the claim by some that they are altruistically motivated to get others on board so they benefit. If the skeptics don't want to invest, then that's just more for the true believer.

My sneaking feeling is that in the absence of any proven economic fundamentals, the typical crypto currency believer is making a bet on a dream. When you're so invested in a dream coming true, and the market fundamentals of that dream seem so maddeningly elusive, is the validation of others the best you can hope for?

I think it's because, unconsciously or not, they realise that the only solid increase in value comes from people hearing and swallowing their bullshit. 'Scuse my language. Might be a bit of reinforcing cognitive dissonance, too. Convincing themselves by regurgitating the same arguments over and over.

On the other hand, you could say the same 'why bother arguing' thing to skeptics too. Just let them lose their money. I would say it's because I care at least a little bit about complete strangers' finances, but if you're going to afford me the right to reasons of altruition I don't see any reason why the other side shouldn't be afforded them as well.

Yes, interesting point about the altruistic motivations of the crypto currency skeptic. Although I don't think the altruistic tendencies are symmetrical in this instance.

On the one hand, a crypto currency skeptic might be forgiven for trying to strong arm people away from liquidating their life savings/going into credit card debt and buying cryptos for fear that they will lose it all. I've had a friend who have never expressed interest in finance and investment suddenly emerge as a potential crypto investor. I was pretty motivated to talk her out of it, but it only seemed to encourage dig into her position.

However, while a crypto currency supporter might be motivated to tell everyone about a great opportunity, if others aren't interested, or actually openly critical, then how much time do they want to waste arguing the point?

I guess I find the psychology of investment interesting. In this instance the mixture of limited experience, limited information, hubris and over confidence, FOMO and mass hysteria has been quite the spectacle.

I'm also conscious that some fans of cryptos may actually be sitting on significant paper gains of a magnitude that they would never have imagined. Of course, despite these gains being unforeseen, it's human nature to attribute great investing skill and foresight to these past decisions. I imagine it's pretty difficult to persuade someone sitting on real or paper crypto gains that what they did is attributable to luck, and is in the long term, highly likely to be unsustainable as from their perspective they've already been proven right.

I guess I find the psychology of investment interesting. In this instance the mixture of limited experience, limited information, hubris and over confidence, FOMO and mass hysteria has been quite the spectacle.

I will say that one good thing to come out of all this is the chance to watch one of these mass delusion bubbles happen in real time instead of a history book. You can even kinda feel the psychology tugging at your own brain. "These people are all so dumb, I could just throw a couple grand in and double it.." I don't quite know what the difference is between me and all the people who dip the toe in and then take a dive - a sickly cocktail of a little bit greedier, maybe a little bit more dissatisfaction with current state of life (looking for 'cheap winnings' to escape situation), a little bit less financially cautious. Maybe the wrong google searches taking them to r/bitcoin instead of r/buttcoin, maybe they actually believe all the ludicrous hype, maybe they've had bad experiences with banks and are looking for alternatives in all the wrong places.

One of the smartest guys I know has fallen down the well and his favourite argument is the 'store of value' - an argument which has many hideous flaws that you really have to just outright ignore if you're going to continue to use it as your justification for speculation. My point here is I'm not sure that outright intelligence is a factor. In fact it almost seems by design to target people who feel they are of higher than average intelligence (let's them say that other people just 'don't understand' blockchain/crypto/etc).

Anyway, you're right - it's fascinating. The hook gets into peoples' brains for a whole bunch of different reasons and likewise the skeptics must belabour many different points of critique to try and get them out. I tend to keep it to internet forums though, it's not worth losing friends over.

Ugh, even my brother is buying and checking charts all the time apparently. He's already in such a good financial position already! Why bother?? Ugh.

I think you are all being uncharitable to crypto proponents. I think they (by and large, although there are exceptions) are genuinely interested in and excited about the technology and want to share. The same reason everyone else is here on the forum, be it investing or frugality or tax information or whatever else, they want to help people.

Now, I think they're wrong. And the conflict of interest is real regardless how pure their intentions. But there's no reason to assume that they don't have the best interest of their fellow Mustachian at heart.

I will say that one good thing to come out of all this is the chance to watch one of these mass delusion bubbles happen in real time instead of a history book. You can even kinda feel the psychology tugging at your own brain. "These people are all so dumb, I could just throw a couple grand in and double it.." I don't quite know what the difference is between me and all the people who dip the toe in and then take a dive - a sickly cocktail of a little bit greedier, maybe a little bit more dissatisfaction with current state of life (looking for 'cheap winnings' to escape situation), a little bit less financially cautious. Maybe the wrong google searches taking them to r/bitcoin instead of r/buttcoin, maybe they actually believe all the ludicrous hype, maybe they've had bad experiences with banks and are looking for alternatives in all the wrong places.

Great analysis there and I can relate.

I'll be the first to admit that the idea of putting some money into crypto currency had previously crossed my mind. My interest was initially piqued by the hype about the disruptive nature of the technology. But even when I became more skeptical I still thought it could be a 'greater fool' type speculation, although the ethics of doing that turns me off. But a younger version of myself probably would have thought more seriously about diving in. I've certainly made a few stock picks earlier on in my life that turned into a centrifuge of value destruction.

But I don't think crypto fans are dumb, although they perhaps aren't skilled at extracting their own desires from a disinterested and objectively analysis of this phenomena. My guess is that they are drawing rational conclusions based on the information they have. Their psychological investment seems to suppress critical evaluation. There's also a strong confirmation bias mixed with relative inexperience that then starts filtering out all the information that seems to conflict with the outcome they are hoping for. I can definitely relate to this when I think back to my earlier stock picking mistakes.

The people who I have personally come across who are into crypto do seem to have something in common. They appear to be trying to make quick gains to compensate for living beyond their means for the previous decade, or two decades, or in one instance three and half decades. It's like they never ever thought to think long term about their finances either due to disinterest, lack of financial literacy, lack of confidence, a sense of hopelessness or a combination of any of the above and more. One day they realise they need to do something about their situation and 7% average returns per annum via the stockmarket just doesn't cut it, or they don't have enough savings for it to be of interest, and btw, the Stockmarket is risky/overvalued/going to fall any minute, didn't you hear? And so bizarrely they find themselves researching bitcoin.

So if you haven't turned your mind to investing, and if it's frankly too late to let compounding returns of diversified investments work for you, then the gains that are breathlessly reported in the media certainly creates conditions where the allure becomes irresistible.

That's not to say all crypto fans are in this situation, and probably doesn't account for the early or earlier adopters. I'm probably more familiar with late comers to the hype.

Insightful post mrhorsey. It makes me wonder more about the youthfulness/financial experience of crypto supporters.

Having lived through the tech bubble of 2000 and the 2008 financial crisis, I can tell you these events have shaped my views on investing. I think that those who experienced one or both of these events, especially with significant financial exposure to the market are more likely to shun crypto.

For example if you remember the Pets.com TV ads, with the sock puppet stating "pets.com... because pets can't drive!" - you're probably not a crypto supporter. We've seen the hype and 'irrational exuberance' and have seen how a vast majority of these end.

Indeed. This point is worth exploring a bit more. It was clear to a lot of people that the Internet had the potential to be a hugely disruptive technology--and they were right. In the 90s, even the general public could see the Internet was a transformational technology and wanted to invest. However, things that seemed clear at the time turned out quite a bit differently than a reasonable person might expect. For example, look at the early ISPs, like Compuserve, Prodigy, and America Online. Those found clearly saw the way things were headed, long before most people had even heard of the Internet. However, they didn't anticipate the web brower, which essentially killed Compuserve and Prodigy. AOL managed to get out in front of it, and became an enormous company, buying out Time Warner in the largest corporate merger in history up until that time. But AOL didn't anticipate that broadband would kill dial-up, and now AOL is a tiny shell of its former self.

Another instructive tale is Yahoo!. Again, it was clear to the founders the world needed a searchable portal, which they created, and Yahoo! became the most popular site on the Internet for a number of years. Yahoo! had features like Yahoo! mail, sort of an early Dropbox-type feature called Briefcase, music streaming, and a whole bunch of nifty features, many of which I saw for the first time on Yahoo!. Interestingly, Yahoo! used Google search technology for a time, and was in talks to buy Google twice, and passed both times. Ultimately Yahoo! couldn't develop superior search technology on its own, and is now a tiny shell of its former self. There were another of other companies similar to Yahoo! like Lycos, Infoseek, and Excite, and they all clearly saw where things were headed and came out with good products, that just didn't survive.

Then there were companies like Webvan, promising Internet grocery delivery. That's not a terrible idea, Amazon, Instacart, and some grocery chains are doing it today. Just didn't work out for Webvan. Same with Kozmo.com that had one hour delivery of videos and other things, and was even starting to make money in some locations. Again, internet ordering and quick delivery is still around, just not from Kozmo. Of course, there is social networking. There was Friendster, which got replaced by Myspace, which in turn was replaced by Facebook.

Point is, a lot of smart people saw which way the winds were blowing, got in on the ground floor, and launched products that people wanted and used but either couldn't stay capitalized long enough, or got replaced by something even better. So even if you truely believe crypto is the way things are headed, there is still no reason to believe any particular crypto won't simply be replaced by a newer, better crypto sometime down the road.

That said, I don't see a need for crypto. It doesn't function like money. I do see some potential uses for blockchain, but I already own the companies that make use of it in my index funds.

A minor side point but personally I think Google won the search battle based on design. Yahoo! was revolting web 1.0 and Google made the correct case for web minimalism. As far as I know most of their search innovation came after they had made it big and actually had the money and resources to invest in research.

Great post, but also just wanted to reiterate not to buy into the blockchain/internet comparison. It's a total non-sequitur to relate the two, which i hope is totally obvious to anyone with half a brain.

Great analysis of the could-have-beens, should'vebeens, has beens of the techboom Telecaster.

One point I'd like to add is that crypto fans seem to miss is that disruptive technologies are all around us. Cars, Airlines, The Internet. And they've all had their booms, they've all attracted capital from investors trying to capitalise on their booms, but in the beginning of each boom it's near impossible figuring out which companies will a) survive, b) prosper and c) dominate once an industry matures.

If you had bet that cars would take over the world, you'd be right. But as one example, which horse and carriage maker converting to automobiles would you have put your money on? There are many many many car manufacturers that never made it.

Airlines were the big thing in the sixties that drew in significant investment capital. A slightly different example as many countries insisted on their own national carrier at the time, but the fierce competition within the US domestic industry probably helped consumers at the time, but investors overall were probably the losers.

Other recent or current booms I know of that suck in investment into little companies all competing with each other, but ultimately burning up investor capital with little return are rare earth miners, as well as lithium miners. Actually medicinal marijuana is probably another one.

I don't know enough about Crypto currency to really be able to say anything sensible about it's viability as a disruptive technology.

But one of the key differences between the tech boom, cars, airlines etc, and crypto currency is that former represent disruptive technologies where investors lost a lot of money trying to bet on which company would be successful exploiting that technology, and ultimately a few companies grew to prosper and in some cases dominate a particular industry. Of course those investors who picked Apple over Apricot, and stuck with it, did very well indeed.

Whereas with crypto currency purchases, while the underlying technology may promise disruption of existing forms of value exchange, by buying the crypto currency an investor isn't actually investing in a business or enterprise that can actually exploit competitive advantage to create value and wealth.

I know this is old hat to most people on this forum. But I think it's a distinction worth making when comparing the tech boom and its few successes many failures, and the crytpo currency boom.

Great analysis of the could-have-beens, should'vebeens, has beens of the techboom Telecaster.

One point I'd like to add is that crypto fans seem to miss is that disruptive technologies are all around us. Cars, Airlines, The Internet. And they've all had their booms, they've all attracted capital from investors trying to capitalise on their booms, but in the beginning of each boom it's near impossible figuring out which companies will a) survive, b) prosper and c) dominate once an industry matures.

If you had bet that cars would take over the world, you'd be right. But as one example, which horse and carriage maker converting to automobiles would you have put your money on? There are many many many car manufacturers that never made it.

Indeed. Here is an exerprt from Warren Buffett's famous 1999 Forbes article. For context, this is when Internet stocks were flying high and could do no wrong. Emphasis mine.

The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane--another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out aircraft manufacturers and found that in the 1919-39 period, there were about 300 companies, only a handful still breathing today. Among the planes made then--we must have been the Silicon Valley of that age--were both the Nebraska and the Omaha, two aircraft that even the most loyal Nebraskan no longer relies upon.

Move on to failures of airlines. Here's a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country's airline companies was zero. Absolutely zero.

Sizing all this up, I like to think that if I'd been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean, Karl Marx couldn't have done as much damage to capitalists as Orville did.

I won't dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from these businesses: The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

Even today although torrenting does have some legitimate use-cases, it's still mostly for pirates and will never replace direct download.

Torrent downloads should replace free direct downloads in most cases. The best way to publicly distribute large files over the internet is through torrent downloads where the publisher continuously seeds the torrent. If few people are downloading the file, they'll mostly direct download from the publisher; if many people are downloading the file, the peer-to-peer network will relieve strain on the publisher's server and increase throughput for everyone. This is why many Linux distributions use torrents. For large files, the only reason not to torrent is to control who has access to the download.

I think you're wrong. Like Sol said, the benefits of a peer-to-peer network are already incorporated and surpassed in Content Distribution Networks that employ geographically distributed datacenter caches. And that is and always will be a better distribution model than true peer-to-peer networking or torrenting. The low latency and high bandwidth of CDN networks (not to mention other features, like cache invalidation if you want to pull something back) will never be matched by torrents that rely on the last-mile connection to Joe Shmoe.

And it will always be cheaper for the companies involved to do it this way too. The bandwidth that ISPs offer consumers is what you'll get on average given their statistical usage models, but it is vastly vastly overcommitted. If everyone started uploading something at once you would not see anything close to your advertised upload speed. It is much cheaper to do things like they are now - with datacenters that have enormous bandwidth that are in close physical proximity to the customers they are serving - that it would be to upgrade everyone in the world's last-mile connection (and all the upstream switches and wires that would have to be upgraded a billion-fold to match).

Linux distributions use torrents because they are free community projects that don't have budget to pay a CDN for their services and so have to settle for the next-best thing, not because they are visionaries that see something that YouTube or Netflix doesn't.

And like GuitarStv said, we shall see, but I can't see how it'll be any different for Blockchain technology. As with torrents there will be a few legitimate long-term use-cases, but there will be better technical solutions for most things.

Agreed p2p may not be faster or more efficient, it is simply a way to reduce the burden of bandwidth/cost when involving very large files or very large numbers of downloads or both.

When Windows10 was in its free distribution phase, it utilized peer to peer downloading systems. If you didn't uncheck a box buried in the options menu your internet connection would be used to seed other people's downloads as your pc was downloading your copy.

This is quite a sidetrack though as the relative utility of the p2p download model is a small niche within a well-off subculture, namely those who owned personal computers, used them for leisure activities, and paid for high speed internet. It provided no additional access or value to anyone outside of that subculture, and the value added was marginal as it only impacted recreation and a tiny fraction of discretionary spending.

I can see how to some this would appear to parallel blockchain. P2p didn't solve any fundamental societal interactions, though. Blockchain solves the issue of trust, and is currently directly usable for financial transactions. This decoupling of trust from 3rd parties is a paradigm shift. There are layers of institutions and middlemen built into our society to facilitate trust that have implicit costs in our daily lives. We've all accepted them because they've always been there, but they may not always have to be.

This market is messed up by the "systemic risk" argument. Since the big banks won't let you margin up buying BTC, there isn't much systemic risk. But its worse, most retail brokers won't even let you short the BTC futures. So the dumb money is going long because its the only thing they can do.

The smart money is buying BTC and selling over priced futures contracts. They will close the near contract and open the next. This will keep a buying pressure on actual bitcoin for the next few months at least. sure you have capital holding costs and some MESSY transaction costs, but there is over a 1300 spread between a coin now on coinbase and a January 17th coin on the CBOE.

Crypto proponents literally make themselves rich by convincing other people to bid up the price of coins they already own. It's classic conflict of interest.

Crypto skeptics generally have nothing to gain by convincing people to avoid investing in crypto. I don't own any, so I don't make or lose any money based on your decisions.

I guess this simplified analysis could be clouded by shorters. Is it even possible to short sell cryptos yet?

This is a false dichotomy as everyone in here who stomps on crypto and beats the drum of index funds benefits when everyone else sticks to the plan of index funds. The wall of pain thrown up against any discussion has a territorial protecting-our-turf feel to it. If you're reading these posts from the mindset of "crypto is worthless and there's nothing you can say to convince me" then we are all wasting our time.

I've learned from both sides and am honestly quite intimidated by the entire prospect of managing my long-term finances. I read all the JCollins stock articles. they seem great and very bullish but he has holes in his gameplan for possible future timelines. And an unscientific flair for extolling stock virtues that, if you replaced the word "stock" with ICO could be mistaken for a crypto launch post.

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

Also the more I learn about traditional markets, the more the "Stay away it's all market manipulation!" argument against crypto gets weaker.

But yeah, don't buy shitcoins and participate in random ICOs bc they have a flashy website, please. And don't buy crypto to try and get rich. It's simply a relatively uncorrelated, new asset class that diversifies a portfolio and may provide a hedge against traditional markets/currencies.

I'll get flamed for saying that but it's basically the opinion of the JPMorgan Global Research Division, and their CEO calls bitcoin a fraud. B/c y'know, CEOs of banks are terrified that CCs will undermine their massive profits. In Bank of America's annual report to the SEC https://www.sec.gov/Archives/edgar/data/70858/000007085818000009/bac-1231201710xk.htm they cited cryptocurrencies as a direct competitor and threat to their profit margins.

From a philosophical standpoint the reason why you buy bitcoin for example, over microsoft stock that is using open source bitcoin code, is for the reason my economics 101 prof taught me long before crypto existed: that the marble wrapped huge bank building is a wasteful monument to the past. The physical operation of it wastes money and the armies of employees and executives that run each bank siphon tremendous amounts of money out of the financial ecosystem to make trusted transactions possible. But we use it, he said, because of habit, because change is ponderous, because it is entrenched, and mainly because we have no other option.

Once you realize that cumbersome and expensive system is suddenly optional it opens up a whole new perspective. And once you participate in it and realize how game changing it could be you want to share it with everyone.

I'll be the first to admit that the idea of putting some money into crypto currency had previously crossed my mind. My interest was initially piqued by the hype about the disruptive nature of the technology. But even when I became more skeptical I still thought it could be a 'greater fool' type speculation, although the ethics of doing that turns me off. But a younger version of myself probably would have thought more seriously about diving in. I've certainly made a few stock picks earlier on in my life that turned into a centrifuge of value destruction.

But I don't think crypto fans are dumb, although they perhaps aren't skilled at extracting their own desires from a disinterested and objectively analysis of this phenomena. My guess is that they are drawing rational conclusions based on the information they have. Their psychological investment seems to suppress critical evaluation. There's also a strong confirmation bias mixed with relative inexperience that then starts filtering out all the information that seems to conflict with the outcome they are hoping for. I can definitely relate to this when I think back to my earlier stock picking mistakes.

The people who I have personally come across who are into crypto do seem to have something in common. They appear to be trying to make quick gains to compensate for living beyond their means for the previous decade, or two decades, or in one instance three and half decades. It's like they never ever thought to think long term about their finances either due to disinterest, lack of financial literacy, lack of confidence, a sense of hopelessness or a combination of any of the above and more. One day they realise they need to do something about their situation and 7% average returns per annum via the stockmarket just doesn't cut it, or they don't have enough savings for it to be of interest, and btw, the Stockmarket is risky/overvalued/going to fall any minute, didn't you hear? And so bizarrely they find themselves researching bitcoin.

So if you haven't turned your mind to investing, and if it's frankly too late to let compounding returns of diversified investments work for you, then the gains that are breathlessly reported in the media certainly creates conditions where the allure becomes irresistible.

That's not to say all crypto fans are in this situation, and probably doesn't account for the early or earlier adopters. I'm probably more familiar with late comers to the hype.

This description sounds like the speculative-bubble type crypto enthusiast. These are the people in it for the wrong reasons, who are going to get burned, and who are not going to provide value to the network. If you read misterhorsey's post and it resonated at all with you for reasons to get into crypto, DO NOT DO SO.Crypto is about adding another layer to your portfolio to diversify, hedge, and yes take advantage of a rapidly growing asset class. Don't throw darts at junk coins to try and make it huge. If you seriously want to participate, do your research, find a project that has strong support and a meaningful long term purpose that provides value, and be in it for the long run. Anything on a short timeline is straight gambling. 2017 was an outlier year. It may happen again someday but it will not happen consistently, and perhaps not for years.

Myself and those I know who are involved in it live within our means, have a strong focus on savings and traditional market retirement plans. We're bullish on the technology and its potential long term implications. Crypto if anything makes me want to be more financially restrained as now there are more baskets that I want to be putting eggs into. And yes I do spend my crypto when the time comes, I've paid for my last two computers with btc, for example.

Great analysis of the could-have-beens, should'vebeens, has beens of the techboom Telecaster.

One point I'd like to add is that crypto fans seem to miss is that disruptive technologies are all around us. Cars, Airlines, The Internet. And they've all had their booms, they've all attracted capital from investors trying to capitalise on their booms, but in the beginning of each boom it's near impossible figuring out which companies will a) survive, b) prosper and c) dominate once an industry matures.

If you had bet that cars would take over the world, you'd be right. But as one example, which horse and carriage maker converting to automobiles would you have put your money on? There are many many many car manufacturers that never made it.

Indeed. Here is an exerprt from Warren Buffett's famous 1999 Forbes article. For context, this is when Internet stocks were flying high and could do no wrong. Emphasis mine.

The other truly transforming business invention of the first quarter of the century, besides the car, was the airplane--another industry whose plainly brilliant future would have caused investors to salivate. So I went back to check out aircraft manufacturers and found that in the 1919-39 period, there were about 300 companies, only a handful still breathing today. Among the planes made then--we must have been the Silicon Valley of that age--were both the Nebraska and the Omaha, two aircraft that even the most loyal Nebraskan no longer relies upon.

Move on to failures of airlines. Here's a list of 129 airlines that in the past 20 years filed for bankruptcy. Continental was smart enough to make that list twice. As of 1992, in fact--though the picture would have improved since then--the money that had been made since the dawn of aviation by all of this country's airline companies was zero. Absolutely zero.

Sizing all this up, I like to think that if I'd been at Kitty Hawk in 1903 when Orville Wright took off, I would have been farsighted enough, and public-spirited enough--I owed this to future capitalists--to shoot him down. I mean, Karl Marx couldn't have done as much damage to capitalists as Orville did.

I won't dwell on other glamorous businesses that dramatically changed our lives but concurrently failed to deliver rewards to U.S. investors: the manufacture of radios and televisions, for example. But I will draw a lesson from these businesses: The key to investing is not assessing how much an industry is going to affect society, or how much it will grow, but rather determining the competitive advantage of any given company and, above all, the durability of that advantage. The products or services that have wide, sustainable moats around them are the ones that deliver rewards to investors.

This market is messed up by the "systemic risk" argument. Since the big banks won't let you margin up buying BTC, there isn't much systemic risk. But its worse, most retail brokers won't even let you short the BTC futures. So the dumb money is going long because its the only thing they can do.

The smart money is buying BTC and selling over priced futures contracts. They will close the near contract and open the next. This will keep a buying pressure on actual bitcoin for the next few months at least. sure you have capital holding costs and some MESSY transaction costs, but there is over a 1300 spread between a coin now on coinbase and a January 17th coin on the CBOE.

I don't see a correction for a few months at a minimum.

LOL. Woops.

Price on 12/11/17 : ~$17000Price today : ~$10,000

loss of 41%.

Your post sounded all intelligent and stuff though. Nice job.

Agreed anyone looking at a price chart by early December could see that the market was in for a correction, the question was just "how soon?"

Crypto proponents literally make themselves rich by convincing other people to bid up the price of coins they already own. It's classic conflict of interest.

Crypto skeptics generally have nothing to gain by convincing people to avoid investing in crypto. I don't own any, so I don't make or lose any money based on your decisions.

I guess this simplified analysis could be clouded by shorters. Is it even possible to short sell cryptos yet?

This is a false dichotomy as everyone in here who stomps on crypto and beats the drum of index funds benefits when everyone else sticks to the plan of index funds. The wall of pain thrown up against any discussion has a territorial protecting-our-turf feel to it. If you're reading these posts from the mindset of "crypto is worthless and there's nothing you can say to convince me" then we are all wasting our time.

I've learned from both sides and am honestly quite intimidated by the entire prospect of managing my long-term finances. I read all the JCollins stock articles. they seem great and very bullish but he has holes in his gameplan for possible future timelines. And an unscientific flair for extolling stock virtues that, if you replaced the word "stock" with ICO could be mistaken for a crypto launch post.

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

Also the more I learn about traditional markets, the more the "Stay away it's all market manipulation!" argument against crypto gets weaker.

But yeah, don't buy shitcoins and participate in random ICOs bc they have a flashy website, please. And don't buy crypto to try and get rich. It's simply a relatively uncorrelated, new asset class that diversifies a portfolio and may provide a hedge against traditional markets/currencies.

I'll get flamed for saying that but it's basically the opinion of the JPMorgan Global Research Division, and their CEO calls bitcoin a fraud. B/c y'know, CEOs of banks are terrified that CCs will undermine their massive profits. In Bank of America's annual report to the SEC https://www.sec.gov/Archives/edgar/data/70858/000007085818000009/bac-1231201710xk.htm they cited cryptocurrencies as a direct competitor and threat to their profit margins.

From a philosophical standpoint the reason why you buy bitcoin for example, over microsoft stock that is using open source bitcoin code, is for the reason my economics 101 prof taught me long before crypto existed: that the marble wrapped huge bank building is a wasteful monument to the past. The physical operation of it wastes money and the armies of employees and executives that run each bank siphon tremendous amounts of money out of the financial ecosystem to make trusted transactions possible. But we use it, he said, because of habit, because change is ponderous, because it is entrenched, and mainly because we have no other option.

Once you realize that cumbersome and expensive system is suddenly optional it opens up a whole new perspective. And once you participate in it and realize how game changing it could be you want to share it with everyone.

yeah. I just don't buy it. CC is essentially the same concept as any other currency, ie gold. when Jesus walked the earth, 1oz of gold could buy a nice robe. Today, 1oz of gold can buy a nice suit. in other words, gold has bounced around more than the stock market, however in the end after thousands of years it's worth essentially the same amount.

How can bitcoin be a reliable currency when it fluctuates an insane amount in a day? How can Apple possibly price it's iphones in Bitcoin, for example, if the value of bitcoin goes up and down so much? They can't. A currency needs to be STABLE, not more volatile than the stock market on crack.

The comment about marble banks being a thing of the past - yeah I agree. It's called Ally bank. Discover Bank. Simple Bank. etc. etc. online banking is replacing brick and mortar. Credit Cards replaced cash. Paypal replaced wire transfers. But one fundamental difference - they all use DOLLARS as their currency. We can exchange DOLLARS back and forth electronically w/ ease and instantaneously for nearly nothing these days, and it's safe! AND backed by FDIC insurance... Technology will improve, maybe block chain has a role in that, but buying ANY currency whether it be gold, bitcoin, or sheep skin, is SPECULATING. not investing. big big BIG difference.

Investing is owning something that PAYS you a share of it's profits. Ie a business. Or owning a loan instrument that PAYS you interest (bond, CD, etc). Or maybe owning a piece of real estate that PAYS you rent. At the end of the day, if you aren't being PAID you aren't investing. It's that simple. Buying something and then hoping a bigger fool will come along and buy it from you for a higher price is gambling, not investing.

That's not my interpretation of that document at all, though it is the one I've seen reported on breathlessly pro-crypto web sites. Rather, that document says crypto is a hugely volatile asset class with no regulation or oversight to keep people from getting burned, and they are worried their banking customers will lose a fortune. This makes crypto a systemic risk to their lending portfolios that they cannot control. It's not a risk to their business model, it's a threat to their customers. Customers who will have to empty all of their bank accounts when they lose everything.

Notice the subtle distinction between the two statements. Crypto doesn't directly threaten banking, it threatens the assets of investors who use banking. No business wants its customers to all go broke on the same day.

This market is messed up by the "systemic risk" argument. Since the big banks won't let you margin up buying BTC, there isn't much systemic risk. But its worse, most retail brokers won't even let you short the BTC futures. So the dumb money is going long because its the only thing they can do.

The smart money is buying BTC and selling over priced futures contracts. They will close the near contract and open the next. This will keep a buying pressure on actual bitcoin for the next few months at least. sure you have capital holding costs and some MESSY transaction costs, but there is over a 1300 spread between a coin now on coinbase and a January 17th coin on the CBOE.

I don't see a correction for a few months at a minimum.

LOL. Woops.

Price on 12/11/17 : ~$17000Price today : ~$10,000

loss of 41%.

Your post sounded all intelligent and stuff though. Nice job.

To be fair, these posts are more than 2 months apart. Of course, the recent low for bitcoin was before 2/11/2018 - ~$7000 on 2/5/18 and the price has remained below $17,000 since 1/6/2018. If the prediction had been "I see a correction within a few months maximum" it might have been spot on (assuming the correction is over rather than simply resting - hard to tell with current data).

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

Having all your money invested in a 100% US Vanguard index fund certainly isn't putting your funds into every single basket. But it sure is a lot of baskets.

I'm writing this as an Australian who has around 50% allocated to international indexes. I wish I could have the US domestic market as my home market as it's significantly more diverse than Australia (which like Canada is dominated by resources and financial companies).

No market is perfect, but the stockmarket is a workable compromise that offers diversification, some degree of transparency, reasonable regulatory oversight, a ready market of buyers and sellers and liquidity. It's a functional proxy for the US economy, but structured in such a way that you can get in and out without too many transactions costs. Which is made easier via an index fund.

If 100% stocks isn't your thing then you could go to one of the blended life strategy funds that mixes in international exposure, as well as fixed interest, property or whatever mix they are offering.

You probably know about these options and they may not be for you and that's fine.

I thought I'd point it out however as the idea of wanting to maximise your return by slicing and dicing every single egg to put it into every single basket is potentially a case of over thinking, over optimising and spending energy to maximise returns, but engaging in an exercise that really offers marginal benefits.

Don't forget that the more time you spend trying to become an expert in crypto currency, index investing, stock picking etc etc, is less time you spend going surfing, hiking, learning new recipes, riding a bike which are investments with undeniably tangible returns on mental and physical health. Frankly, squeezing a few more extra per cent out of a asset allocation is a waste of your precious time on this planet compared to enriching your experiential world!

From a philosophical standpoint the reason why you buy bitcoin for example, over microsoft stock that is using open source bitcoin code, is for the reason my economics 101 prof taught me long before crypto existed: that the marble wrapped huge bank building is a wasteful monument to the past. The physical operation of it wastes money and the armies of employees and executives that run each bank siphon tremendous amounts of money out of the financial ecosystem to make trusted transactions possible. But we use it, he said, because of habit, because change is ponderous, because it is entrenched, and mainly because we have no other option.

Once you realize that cumbersome and expensive system is suddenly optional it opens up a whole new perspective. And once you participate in it and realize how game changing it could be you want to share it with everyone.

I love the reference to "marble wrapped huge bank building is a wasteful monument to the past".

The recent GFC experience of staid trading banks mutating into excessively risk taking investment banks has undermined my faith in the role banks have in lubricating the economy. All the douchebags banker types acting without moral hazard, snorting cocaine, stealing from clients, defrauding their own companies and driving expensive sports cars makes their claim as having a critical role in the efficient allocation of capital in a sophisticated economy seem really dubious. Australia has by comparison with the US a very strictly regulated banking regime dominated by 4 banks which run as a stable, but uncompetitive cartel. It's the price we seem to think we need to pay for stability.

So i'm sympathetic to the idea of certain technologies having a disruptive effect on the status quo.

However, as much as you'd like it to be, it doesn't necessarily follow that crypto currency innovation is the silver bullet to central bank control over an economy, on a societal and economic level. There's a whole range of intertwined and vested interests, from bankers to individuals, that have a lot to lose from the current system, and little to gain from whatever is being proposed.

And similarly, it doesn't following that buying crypto currency is a good investment on an individual level. The volatility is too high, the risk of your investment going to zero is too real, there are no earnings, it has no yield. It has no market fundamentals.

The only thing going for it is price appreciation. Which has obviously made it extremely successful as a speculative play for some.

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

You think that investing in a diversified stock mutual fund is insufficiently diverse because it doesn't include new asset classes like crypto?

By that same logic, you can be healthier if you diversify your fitness plan by eschewing diet and exercise and including a small allocation to heroin use. For the sake of moderation. You wouldn't want to put all of your eggs in the "diet and exercise" basket when there are so many alternatives out there for diversification. Why risk missing out on the potential upside of heroin?

Blockchain is an interesting idea, but as far as I can tell crypto coins are all 100% scam products designed from the outset to defraud investors. They are deliberately constructed to avoid regulations and consumer protections, to bypass sanctions, and to facilitate illegal activity. Their only value to anyone is as a way to cash in on internet hype by convincing people to give you money in exchange for a digital object that creates no revenue stream. It's modern day snake oil, all breathless promises and no substance.

I really really wanted to love bitcoin. I tried so hard to justify it's existence, to find a profitable use case that would justify a nonzero price, but so far I'm coming up empty. If someone out there in mustache land has an economic justification for a price above zero, I'm still eagerly seeking it out. Please share.

At this point I'd rather invest in beanie babies. At least there are collectors out there that value pristine examples of early edition ones, and they are distinguishable physical objects that took real work to create. They also lack a revenue stream or a justification for existing beyond fanboy demand, but at least they literally exist in the universe instead of just as tradeable ideas.

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

You think that investing in a diversified stock mutual fund is insufficiently diverse because it doesn't include new asset classes like crypto?

I think a diversified stock fund/vanguard index / etc is the ideal investment vehicle for equities.

My retirement account is my priority, it is primarily in exactly those such funds, with a very small portion of individual picks.

I tend towards exhaustive research and careful action. JCollins series for example is a wealth of data. His experience and calm countenance are a great antidote for short term market angst. The critical point of long term buy and hold is to stick to the plan, and I plan to do so.

Yet I have been trained to think scientifically, and the entire premise behind the 100% index fund allin is the utterly unscientific "the market always goes up." The US stock market has always done so, it will hopefully continue to do so.

A number of factors are substantively different now than in the first 100 years, weakening that empirical evidence. Volatility is much higher. Algorithmic trading/HFT and the seemingly consequence-free major stock market firms are siphoning money out of the market. The US stock market is zero-sum (technically, slightly negative sum after fees), though it continues to grow on the whole. I only have glimpses into today's market through the expertise of others, but as someone who utilizes statistics, I understand generally that:as volatility increases, and growth rates are reduced(by entities like HFT and traditional firms pulling money from the market as an unnecessary intermediary layer for example), the likelihood of outlier events both short and long term go up. These are concerns from my limited knowledge, there's much I don't know.

As a result, i find it difficult to embrace an all-in investment philosophy that starts by ignoring certain sets of future possibilities, such as a prolonged decline in the equity markets. Having a plan is good, having a plan for when your plan fails is better.

Bitcoin does not offer interest, true. Its value is directly tied to the user base, and equilibrium price will be achieved when adoption rate slows to a trickle. Some cryptos (proof of stake) offer interest for validating the network, typically 3-5%.

Bitcoin has historically exhibited some characteristics of antifragility - crashes and bubble pops, negative news and criticism, and economic uncertainty have all eventually resulted in growth. This is the type of asset I want a small piece of as a hedge.

Sustained inflation, for example, would make a fixed-supply, widely accessible and autonomous, fungible asset like btc desirable to many as a way to protect their net worth while still being able to spend as needed.

Such a surge in adoption would see a commensurate surge in price, then a new equilibrium. These adopters would be seeking to transact in bitcoin as a means of stabilizing their finances(ironically given today's climate), not speculate.

This is why the speculative bubbles are such a hindrance to crypto, because they are the antithesis of its long term utility.

By that same logic, you can be healthier if you diversify your fitness plan by eschewing diet and exercise and including a small allocation to heroin use. For the sake of moderation. You wouldn't want to put all of your eggs in the "diet and exercise" basket when there are so many alternatives out there for diversification. Why risk missing out on the potential upside of heroin?

Blockchain is an interesting idea, but as far as I can tell crypto coins are all 100% scam products designed from the outset to defraud investors. They are deliberately constructed to avoid regulations and consumer protections, to bypass sanctions, and to facilitate illegal activity. Their only value to anyone is as a way to cash in on internet hype by convincing people to give you money in exchange for a digital object that creates no revenue stream. It's modern day snake oil, all breathless promises and no substance.

I really really wanted to love bitcoin. I tried so hard to justify it's existence, to find a profitable use case that would justify a nonzero price, but so far I'm coming up empty. If someone out there in mustache land has an economic justification for a price above zero, I'm still eagerly seeking it out. Please share.

At this point I'd rather invest in beanie babies. At least there are collectors out there that value pristine examples of early edition ones, and they are distinguishable physical objects that took real work to create. They also lack a revenue stream or a justification for existing beyond fanboy demand, but at least they literally exist in the universe instead of just as tradeable ideas.

Yes I'm aware of your aversion for crypto as your colorful analogies imply. I'm also aware that you do not understand why it could be useful.

FWIW I've read that Legos actually hold their value quite well, I base this on very little tho so do your own research and don't keep any Legos on exchanges.

As an aside, have you used BTC at all? Getting started with it takes a bit of effort, but it's fascinating to transact with once you have it.

Crypto proponents literally make themselves rich by convincing other people to bid up the price of coins they already own. It's classic conflict of interest.

Crypto skeptics generally have nothing to gain by convincing people to avoid investing in crypto. I don't own any, so I don't make or lose any money based on your decisions.

I guess this simplified analysis could be clouded by shorters. Is it even possible to short sell cryptos yet?

This is a false dichotomy as everyone in here who stomps on crypto and beats the drum of index funds benefits when everyone else sticks to the plan of index funds. The wall of pain thrown up against any discussion has a territorial protecting-our-turf feel to it. If you're reading these posts from the mindset of "crypto is worthless and there's nothing you can say to convince me" then we are all wasting our time.

I've learned from both sides and am honestly quite intimidated by the entire prospect of managing my long-term finances. I read all the JCollins stock articles. they seem great and very bullish but he has holes in his gameplan for possible future timelines. And an unscientific flair for extolling stock virtues that, if you replaced the word "stock" with ICO could be mistaken for a crypto launch post.

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

Also the more I learn about traditional markets, the more the "Stay away it's all market manipulation!" argument against crypto gets weaker.

But yeah, don't buy shitcoins and participate in random ICOs bc they have a flashy website, please. And don't buy crypto to try and get rich. It's simply a relatively uncorrelated, new asset class that diversifies a portfolio and may provide a hedge against traditional markets/currencies.

I'll get flamed for saying that but it's basically the opinion of the JPMorgan Global Research Division, and their CEO calls bitcoin a fraud. B/c y'know, CEOs of banks are terrified that CCs will undermine their massive profits. In Bank of America's annual report to the SEC https://www.sec.gov/Archives/edgar/data/70858/000007085818000009/bac-1231201710xk.htm they cited cryptocurrencies as a direct competitor and threat to their profit margins.

From a philosophical standpoint the reason why you buy bitcoin for example, over microsoft stock that is using open source bitcoin code, is for the reason my economics 101 prof taught me long before crypto existed: that the marble wrapped huge bank building is a wasteful monument to the past. The physical operation of it wastes money and the armies of employees and executives that run each bank siphon tremendous amounts of money out of the financial ecosystem to make trusted transactions possible. But we use it, he said, because of habit, because change is ponderous, because it is entrenched, and mainly because we have no other option.

Once you realize that cumbersome and expensive system is suddenly optional it opens up a whole new perspective. And once you participate in it and realize how game changing it could be you want to share it with everyone.

yeah. I just don't buy it. CC is essentially the same concept as any other currency, ie gold. when Jesus walked the earth, 1oz of gold could buy a nice robe. Today, 1oz of gold can buy a nice suit. in other words, gold has bounced around more than the stock market, however in the end after thousands of years it's worth essentially the same amount.

How can bitcoin be a reliable currency when it fluctuates an insane amount in a day? How can Apple possibly price it's iphones in Bitcoin, for example, if the value of bitcoin goes up and down so much? They can't. A currency needs to be STABLE, not more volatile than the stock market on crack.

The comment about marble banks being a thing of the past - yeah I agree. It's called Ally bank. Discover Bank. Simple Bank. etc. etc. online banking is replacing brick and mortar. Credit Cards replaced cash. Paypal replaced wire transfers. But one fundamental difference - they all use DOLLARS as their currency. We can exchange DOLLARS back and forth electronically w/ ease and instantaneously for nearly nothing these days, and it's safe! AND backed by FDIC insurance... Technology will improve, maybe block chain has a role in that, but buying ANY currency whether it be gold, bitcoin, or sheep skin, is SPECULATING. not investing. big big BIG difference.

Investing is owning something that PAYS you a share of it's profits. Ie a business. Or owning a loan instrument that PAYS you interest (bond, CD, etc). Or maybe owning a piece of real estate that PAYS you rent. At the end of the day, if you aren't being PAID you aren't investing. It's that simple. Buying something and then hoping a bigger fool will come along and buy it from you for a higher price is gambling, not investing.

Really good points.

Bitcoin's current volatility is a substantial hindrance. The speculative bubble cycles are madness. The intervening times have actually been pretty stable. It needs to mature substantially to have widespread utility.

The internet-based bank is an excellent point. It's a step in the right direction, but you still pay CEOs and large employee pools to facilitate trust.

FWIW in order to liquidate our stock positions, a "bigger fool" must be present to buy them. I understand what you are saying about investing, this is an unconventional asset class. Purchasing btc is a bet that the future userbase will be larger than it is today, or as a hedge that potential future timelines where the userbase is larger are also timelines where traditional assets are struggling.

The more I learn about financial markets in all forms the more I want to have eggs in as many baskets as possible. I know that goes against the "100% vanguard index fund allin" plan advocated in general here. Mustachianism resonates powerfully with me, though I can't figure out why that one specific investment vehicle has taken over this world to the exclusion of others, when nearly everything else about Mustachianism is about moderation/restraint.

Having all your money invested in a 100% US Vanguard index fund certainly isn't putting your funds into every single basket. But it sure is a lot of baskets.

I'm writing this as an Australian who has around 50% allocated to international indexes. I wish I could have the US domestic market as my home market as it's significantly more diverse than Australia (which like Canada is dominated by resources and financial companies).

No market is perfect, but the stockmarket is a workable compromise that offers diversification, some degree of transparency, reasonable regulatory oversight, a ready market of buyers and sellers and liquidity. It's a functional proxy for the US economy, but structured in such a way that you can get in and out without too many transactions costs. Which is made easier via an index fund.

If 100% stocks isn't your thing then you could go to one of the blended life strategy funds that mixes in international exposure, as well as fixed interest, property or whatever mix they are offering.

You probably know about these options and they may not be for you and that's fine.

I thought I'd point it out however as the idea of wanting to maximise your return by slicing and dicing every single egg to put it into every single basket is potentially a case of over thinking, over optimising and spending energy to maximise returns, but engaging in an exercise that really offers marginal benefits.

Don't forget that the more time you spend trying to become an expert in crypto currency, index investing, stock picking etc etc, is less time you spend going surfing, hiking, learning new recipes, riding a bike which are investments with undeniably tangible returns on mental and physical health. Frankly, squeezing a few more extra per cent out of a asset allocation is a waste of your precious time on this planet compared to enriching your experiential world!

(Woops, that escalated quickly).

Jealous! Australia is my favorite country, I'd love to live there.

I do take advantage of such funds and they are my primary retirement investment vehicle.

Your latter point is great, and I will strive to take it to heart. I've been spending way too much time on a variety of financial topics, to the detriment of higher quality life endeavors.

One clarification is that I'm not seeking to optimize fractional increases in growth, rather seeking to optimize the variety of financial futures in which I am still financially robust. Basically, trying to avoid a long term strategy that despite foreseeable problems could result in me being broke/struggling.

From a philosophical standpoint the reason why you buy bitcoin for example, over microsoft stock that is using open source bitcoin code, is for the reason my economics 101 prof taught me long before crypto existed: that the marble wrapped huge bank building is a wasteful monument to the past. The physical operation of it wastes money and the armies of employees and executives that run each bank siphon tremendous amounts of money out of the financial ecosystem to make trusted transactions possible. But we use it, he said, because of habit, because change is ponderous, because it is entrenched, and mainly because we have no other option.

Once you realize that cumbersome and expensive system is suddenly optional it opens up a whole new perspective. And once you participate in it and realize how game changing it could be you want to share it with everyone.

I love the reference to "marble wrapped huge bank building is a wasteful monument to the past".

The recent GFC experience of staid trading banks mutating into excessively risk taking investment banks has undermined my faith in the role banks have in lubricating the economy. All the douchebags banker types acting without moral hazard, snorting cocaine, stealing from clients, defrauding their own companies and driving expensive sports cars makes their claim as having a critical role in the efficient allocation of capital in a sophisticated economy seem really dubious. Australia has by comparison with the US a very strictly regulated banking regime dominated by 4 banks which run as a stable, but uncompetitive cartel. It's the price we seem to think we need to pay for stability.

So i'm sympathetic to the idea of certain technologies having a disruptive effect on the status quo.

However, as much as you'd like it to be, it doesn't necessarily follow that crypto currency innovation is the silver bullet to central bank control over an economy, on a societal and economic level. There's a whole range of intertwined and vested interests, from bankers to individuals, that have a lot to lose from the current system, and little to gain from whatever is being proposed.

And similarly, it doesn't following that buying crypto currency is a good investment on an individual level. The volatility is too high, the risk of your investment going to zero is too real, there are no earnings, it has no yield. It has no market fundamentals.

The only thing going for it is price appreciation. Which has obviously made it extremely successful as a speculative play for some.

As always, eager to learn more.

Agree completely that the entrenched system has little incentive to adopt crypto/likely will actively resist, and it is unlikely for it to be a "silver bullet" especially with the political clout these institutions wield.

Also agree it does not have market fundamentals in the conventional sense. It's a very unorthodox asset class.

It also does not have corporate overhead, or institutionalized middlemen siphoning money out of the ecosystem while providing no value. Exchanges charge a modest fee but you can deposit USD to coinbase and buy limit-order on GDAX for 0% fee.

Once you have your btc you hold or spend it as you wish, you require no trusted 3rd party with your funds, and transaction fees are (aside from nov-mid january insanity) extremely low, and go towards miners who provide value to the network. I sent a transaction last week and the fee was $0.09.

It's a self contained ecosystem that doesn't require increased adoption or approval to continue existing and providing value to the user base. It's organically driven and does not have the "grow or fail" dichotomy of a corporate startup. It can settle into some ancillary role nicely and remain there indefinitely as long as its userbase is deriving value from it by participating in the network.

I hate to burst your "scientific" bubble here, but the stock market (and the larger economy that it is a rough proxy for) is not at all a zero sum game. Why on earth would you think that?

-W

The proof of this is that in this country, and more dramatically world wide, more people are living at a higher standard of living than they ever have. This means the greater economy must be creating wealth. Therefore one would logically expect that a proxy for the economy--like the value of all the publicly traded companies--would also increase in value over time. And it has, just as we would expect.

It is interesting to look at professions where the skill set hasn't changed much over time. Like say, a barber or a professional violinist. It takes the same amount of skill to be a barber or violinist today as it did 100 years ago. Yet, even after adjusting for inflation, a barber or violinist today makes vastly more money than they did 100 years ago. Why? Because the economy has created a vast amount of wealth during that time.

That's why stocks will always go up over time, baring a zombie apocalypse, Yellowstone erupting, or a meteor strike or some such. In those events a comfortable retirement is the least of our worries. And of course noting that the market can go bonkers in either direction for uncomfortably long periods.

If you are sincere and not sarcastically shitting on crypto enthusiasts, I recommend getting a little bit of skin in the game; $50 or so and think of it as a consumable. I'm assuming you have no crypto and have not used it, and maybe that's limiting you from understanding it better. If, after this, you remain skeptical, then you'll have more references to debate from.

If you're interested, I'm willing to guide you through the process as well as offer more in-depth perspectives on why I believe in crypto. The steps can be time-intensive, and will also address pc security.

Yes, totally sincere and eager to learn more and totally not shitting on nobody! Tone is difficult to convey across the internet.

I totally subscribe to the view that the best way to learn is by doing, so buying $50 worth may be one way of learning the ins and outs (just wish I'd bought in 2010....). And that's a very kind offer to take me under your crypto wing and be my guide.

However, my curiosity about Crypto currency is probably about the the way that it has been the starting point for a speculative craze, at the moment, and the psychology of investing. I'm primarily interested in the way people make investment decisions based on whatever imperfect information that they may have at hand at any given time. I'm interested in how people become anchored in certain investment decisions, the way confirmation bias kicks in, the way people have an aversion to certain types of risk but also, due to what I think is access to poor quality information or subscribing to a simplified model of the world that makes sense in their own minds, embrace a level of risk they might otherwise be unwilling to take in other circumstances.

It's not just crypto of course where people behave 'irrationally'. Plenty of people keep their savings in cash, because it's 'safe' not realising that the stead erosion caused by inflation makes it, in the long term, an undesirable store of value.

I'm personally skeptical about crypto speculation because it's a fascinating real time version of all the bubbles you read about (Mississipi company, South Sea bubble, Tuplips, Dot.Com etc).

I'm personally dubious about the utility of crypto on a economic / societal level as the current system, with all it's imperfections and distortions, seems to work okay with a low barrier to entry, good confidence, and minimal transactional friction to users on an individual level.

I dare say a lot of the interest in the utility of crypto is used to justify the spectacular price appreciation of the former. I think, as I think Surf has set out, that the two are quite distinct considerations. However, how much interest in the former would there be without the price appreciation?

But ultimately, the key reason why i won't take you up on your offer is I just have too many calls on my time at the moment. Too many things I want to do. Books to read on other subjects. This stuff is fascinating, and I've read a few articles about it, but I'm happy to read about it on the sidelines and either see the bubble fizzle out, or eventually welcome our decentralised, distributed currency non-overlords and a world free of rent seeking financial institutions and governments!

One clarification is that I'm not seeking to optimize fractional increases in growth, rather seeking to optimize the variety of financial futures in which I am still financially robust. Basically, trying to avoid a long term strategy that despite foreseeable problems could result in me being broke/struggling.

One thing I wanted to note here is that no-one really ever does go into these kinds of things or even more staid stock picking investments for fractional increases in growth.

But once you factor in the time spent learning about investments, and after the passage of time, marginal gains is all that you tend to get!

I speak from my own experience. My first year of stock picking yielded around a 30% gain, the next year about 25%. These were great returns at the time. The next year I probably performed around -5% then 0% the next year.

Eventually I got sick of all the time I spent researching and stressing about stock picks and decided to cut my losses and move to indexes. Eventually after the passage of time is taken into account, I probably outperformed the indexes, but given the amount I put into it, and the small gains I experienced, I would have been so much better off if I'd tried learning another language, improving my guitar playing, you get the picture!

Now that I'm in indexes I stopped worrying about performance of my portfolio but my world is so much richer for the amount of mind expanding reading I've been doing instead of Annual report nonsense and analyst notes.

FWIW in order to liquidate our stock positions, a "bigger fool" must be present to buy them. I understand what you are saying about investing, this is an unconventional asset class. Purchasing btc is a bet that the future userbase will be larger than it is today, or as a hedge that potential future timelines where the userbase is larger are also timelines where traditional assets are struggling.

I have seen variations of this falsehood being repeated over and over by the pro-crypto bunch. People who invest in the stock market do not require greater fools for their investment to be successful. A share of stock entitles the owner to a share of future earnings of a company, or in the case of an index fund, all of the companies represented on the index. The share of future earnings is realized by the payment of dividends and as an accumulation of retained earnings which will accrue to book value and as investments in future profitability of the company. The stock price is a market-based discounting mechanism of the net-present value of those two things, nothing more. Usually the price is an accurate representation of the NPV, but it can swing in one direction or another from time to time. In the same way that a person who buys a whole company can be a perfectly successful investor without ever selling it -- because all of the profits are his own and he can sell an asset of the company, e.g. a forklift, and pay himself the proceeds -- a person who buys a share of a publicly traded company on the stock market can also be a perfectly successful investor without ever needing to sell.

The continued argument from the pro-crypto bunch that in order for an investment in the stock to be successful an ever expanding pool of "greater fools" to come in and buy at a higher price is needed is a naive and unsophisticated understanding of stocks and a stock market and it exhibits a fundamental lack of understanding of the nature of investment.

This.

The lack of understanding of how the stock market works is astounding. Investing in companies, sharing in their profits, is INVESTING. Buying something that just sits there and doesn't pay you anything, whether it be a rock, a piece of gold, or a bitcoin, is SPECULATING. You are SPECULATING that a bigger fool will pay more than what you paid for it. If you own a share of a company you are BEING PAID via dividends/buybacks. When Apple sells an iphone, a percentage of that sale goes to YOU the shareholder. Stocks and bitcoin are apples and oranges. One is investing, sharing the profits, increasing your wealth over time, the other is gambling.

FWIW in order to liquidate our stock positions, a "bigger fool" must be present to buy them. I understand what you are saying about investing, this is an unconventional asset class. Purchasing btc is a bet that the future userbase will be larger than it is today, or as a hedge that potential future timelines where the userbase is larger are also timelines where traditional assets are struggling.

I have seen variations of this falsehood being repeated over and over by the pro-crypto bunch. People who invest in the stock market do not require greater fools for their investment to be successful. A share of stock entitles the owner to a share of future earnings of a company, or in the case of an index fund, all of the companies represented on the index. The share of future earnings is realized by the payment of dividends and as an accumulation of retained earnings which will accrue to book value and as investments in future profitability of the company. The stock price is a market-based discounting mechanism of the net-present value of those two things, nothing more. Usually the price is an accurate representation of the NPV, but it can swing in one direction or another from time to time. In the same way that a person who buys a whole company can be a perfectly successful investor without ever selling it -- because all of the profits are his own and he can sell an asset of the company, e.g. a forklift, and pay himself the proceeds -- a person who buys a share of a publicly traded company on the stock market can also be a perfectly successful investor without ever needing to sell.

The continued argument from the pro-crypto bunch that in order for an investment in the stock to be successful an ever expanding pool of "greater fools" to come in and buy at a higher price is needed is a naive and unsophisticated understanding of stocks and a stock market and it exhibits a fundamental lack of understanding of the nature of investment.

This.

The lack of understanding of how the stock market works is astounding. Investing in companies, sharing in their profits, is INVESTING. Buying something that just sits there and doesn't pay you anything, whether it be a rock, a piece of gold, or a bitcoin, is SPECULATING. You are SPECULATING that a bigger fool will pay more than what you paid for it. If you own a share of a company you are BEING PAID via dividends/buybacks. When Apple sells an iphone, a percentage of that sale goes to YOU the shareholder. Stocks and bitcoin are apples and oranges. One is investing, sharing the profits, increasing your wealth over time, the other is gambling.

+1 more

Another alternative is active investing - in an area where you have 'inside' knowledge that enables you to beat the market. Legally this can be done in your local real estate market. It takes work but local knowledge can give you an edge that some REIT manager in NY simply doesn't have.

I won't quote all the text but I'm replying to privatefarmer's post immediately above...

Is a potential source of confusion the fact that while one can invest by buying stocks (that earn an income, and holding them long turn), you can also in some cases also buy stocks for purely speculative reasons?

It's actually not quite so black and white, i.e. stocks = good, crypto = bad. In an effort to dispel some of the myths of the Stockmarket propounded by crypto fans, I feel sometimes the shortcomings of the Stockmarket are ignored. Short term speculative trading in stocks can be equally bad news.

So while not recommended, the greater fool approach to buying and selling stocks can apply. The market can be gamed. Whether via taking a punt on the latest biotech without earnings, or engaging in illegal 'pump and dumps'. Then you can leverage up and add in options to increase the pain.

Most people new to the Stockmarket seem to initially educate themselves via mainstream business news - which ignores the boredom of ongoing compounding returns in favour of booms, busts, day traders and line charts that inevitably crash. So they inevitably equate stock trading with gambling, unless they choose to educate themselves further.

Bitcoin hype in the mainstream media seems to attract some people to thinking about investments, but sends them down the path of speculation.

I won't quote all the text but I'm replying to privatefarmer's post immediately above...

Is a potential source of confusion the fact that while one can invest by buying stocks (that earn an income, and holding them long turn), you can also in some cases also buy stocks for purely speculative reasons?

It's actually not quite so black and white, i.e. stocks = good, crypto = bad. In an effort to dispel some of the myths of the Stockmarket propounded by crypto fans, I feel sometimes the shortcomings of the Stockmarket are ignored. Short term speculative trading in stocks can be equally bad news.

So while not recommended, the greater fool approach to buying and selling stocks can apply. The market can be gamed. Whether via taking a punt on the latest biotech without earnings, or engaging in illegal 'pump and dumps'. Then you can leverage up and add in options to increase the pain.

Most people new to the Stockmarket seem to initially educate themselves via mainstream business news - which ignores the boredom of ongoing compounding returns in favour of booms, busts, day traders and line charts that inevitably crash. So they inevitably equate stock trading with gambling, unless they choose to educate themselves further.

Bitcoin hype in the mainstream media seems to attract some people to thinking about investments, but sends them down the path of speculation.

Absolutely stocks can be speculated; however, there are mechanisms in place that spell out to you if your purchase is going anywhere. In the late 1990s, anything with "net" in the name got an IPO and people throwing money at it. They bought the hype and there was a run up on many of these companies that turned out to be worthless. The controls were already in place to alert them to this situation, but people ignored them. Before you buy a stock, you can conduct research of that company and find out beforehand if the company actually produces something and either is or might make a profit in the future. We talk about P/E here all the time and whether a stock price accurately reflects its real value.

It advances asymmetric cryptography and allows for a new form of digital communication.

I'm not so sure. I think PGP was a much bigger step forward in terms of making cryptography useful for digital communications, but almost nobody uses it anymore. We've all just decided that weak privacy through ad-supported corporate services is more convenient.

We have the illusion of enhanced privacy with "incognito mode" that doesn't actually encrypt anything. We like having password recovery options, because we want to put trust in real people instead of secret codes to protect us. And if you want to be more anonymous you can always play with tor, but just like bitcoin it's mostly criminal and illegal activities that benefit there.

Civilization thrives with trust. Instead of giving everyone the best deadbolt for their front door, we pay police to deter burglary and hunt down criminals, including busting down their front doors. Instead of irreversible anonymous financial transactions, we pay banks to track terrorism and drug money and freeze the assets of rogue actors. In all aspects of society from schools to traffic to real estate, trust makes the system work and individual cryptography just incentives crime.

I understand the argument about crypto protecting people from overzealous government intrusion, but we need and want our government to stabilize society as long as it is democratically elected and corruption free. America protects your freedoms by NOT giving you perfect privacy. You are not allowed to keep a child sex slave in your basement, and we want government to be able to forcibly intervene in that situation. Perfect encryption, like an impenetrable door lock, gives you the power (and the "freedom") to break the law at will. That infringes upon the freedoms of everyone else.

If you want to live in modern society, you have to forfeit some of your freedoms. You cannot murder without consequences, so you forfeit your freedom to murder in exchange for protection from being murdered. Crypto is the opposite deal; you get to do anything at all, but the price is that you have no protections. You can't stop child porn of your kids from being distributed with crypto. Your cryptocoins are not insured or otherwise retrievable when the exchange gets hacked. The terrorist plot goes undetected until the buildings start to fall.

Perfect cryptography literally undermines the very idea of civilization. It is power without responsibility, freedom without protection, personal gain at the expense of society as a whole. It is arguably an evil idea, even when well intentioned.

We already had this discussion. Crypto is double-edge, just like the internet, science, weapons, medicine, any other technology.

I don't think it's at all analogous. Science and the internet and medicine are all pro-social ideas. They can help societies thrive by making life better.

Cryptography doesn't advance the interests of civilized society. It can't be used to build trust and cooperation, to facilitate progress, or to help people live better lives. It can only be used to do the opposite.

Maybe weapons are a better analogy? Weapons are designed to kill people, and we sometimes use them to kill people in order to protect the rights of other people, but I feel like that role should be reserved to the state. I don't want every citizen to have RPGs locked and loaded by the front door, or claymores around the perimeter of their lawn, or sarin gas in their refrigerator. These things are destructive tools that should not be widespread among the public, but reserved for use in exceptional cases by a democratically elected representative government. And basically prohibited to everyone else, because they are powerfully evil. They do not serve society by becoming widely distributed. You don't make society better by giving out sarin nerve gas.

I can see a legitimate governmental use for perfect unhackable cryptography. I don't see many legitimate private uses yet, but I sure do see a whole bunch of illegitimate and dangerous and illegal ones.

If cryptography fundamentally undermines the basic social contract on which civilization is built, do we really want everyone to have unlimited access to it? Do we really have a choice anymore?

I can see a legitimate governmental use for perfect unhackable cryptography. I don't see many legitimate private uses yet, but I sure do see a whole bunch of illegitimate and dangerous and illegal ones.

If cryptography fundamentally undermines the basic social contract on which civilization is built, do we really want everyone to have unlimited access to it? Do we really have a choice anymore?

I wouldn't go that far. Your web browser uses security hash algorithms to make secure connections. Most likely the same one that Bitcoin relies on. I agree with your point about trust and the social contract, but security is important too. That's why we have locks on our doors, and our online banking is protected by passwords. We constantly hear stories how Target (or whoever) was hacked and the thieves stole 20,000,000 credit card numbers. How come those numbers weren't encrypted? If they had been encrypted they couldn't have been stolen. Security helps keep out the bad actors, and that allows us to trust things like credit card transactions.

But back to your point on trust. All money is a figment of our imagination. We just all believe it to exist...and there it is. But people don't really believe in Bitcoin. How do we know? Because the price compared to something we do believe in, the USD, changes radically over time. And that's the fundamental problem. People don't really believe in it.

FWIW in order to liquidate our stock positions, a "bigger fool" must be present to buy them. I understand what you are saying about investing, this is an unconventional asset class. Purchasing btc is a bet that the future userbase will be larger than it is today, or as a hedge that potential future timelines where the userbase is larger are also timelines where traditional assets are struggling.

I have seen variations of this falsehood being repeated over and over by the pro-crypto bunch. People who invest in the stock market do not require greater fools for their investment to be successful. A share of stock entitles the owner to a share of future earnings of a company, or in the case of an index fund, all of the companies represented on the index. The share of future earnings is realized by the payment of dividends and as an accumulation of retained earnings which will accrue to book value and as investments in future profitability of the company. The stock price is a market-based discounting mechanism of the net-present value of those two things, nothing more. Usually the price is an accurate representation of the NPV, but it can swing in one direction or another from time to time. In the same way that a person who buys a whole company can be a perfectly successful investor without ever selling it -- because all of the profits are his own and he can sell an asset of the company, e.g. a forklift, and pay himself the proceeds -- a person who buys a share of a publicly traded company on the stock market can also be a perfectly successful investor without ever needing to sell.

The continued argument from the pro-crypto bunch that in order for an investment in the stock to be successful an ever expanding pool of "greater fools" to come in and buy at a higher price is needed is a naive and unsophisticated understanding of stocks and a stock market and it exhibits a fundamental lack of understanding of the nature of investment.

I am aware of the functioning of stocks, and I own plenty. You disagreed with something I didn't say.

Money that is invested in a firm by its owner(s) or holder(s) of common stock (ordinary shares) but which is not returned in the normal course of the business. Investors recover it only when they sell their shareholdings to other investors, or when the assets of the firm are liquidated and proceeds distributed among them after satisfying the firm's obligations. Also called equity contribution.

I said in order to liquidate your investment you must have someone to sell the shares(or have the firm liquidate all its assets, whatever's left after satisfying their debts). I didn't say you had to liquidate them in order to be profitable.

The illustrative point is that if all the future stock investors disappeared those who were left holding shares would have no way out(without the company liquidating.)

I hate to burst your "scientific" bubble here, but the stock market (and the larger economy that it is a rough proxy for) is not at all a zero sum game. Why on earth would you think that?

-W

Whew I put up a LOT of information there and the two direct replies were either a complete misreading (first one) or harping on an ancillary point that again actually misreads what I wrote.

I should have included "trading" or "competing" for clarification. My sentence about zero-sum stands, though. Individual trades in the market are zero sum, one person buys, the other sells, no new money is created. Technically slightly negative sum as a fee is extracted. If you are trading all day you are participating in a zero sum environment vs other entities and you best make sure you are in the top half.

The second half of my statement "which grows over time" indicates that the buy-and-hold aspect of the stock market is NOT zero sum. Companies gain value and that value is transferred to the stock owners. That's why we all own stock funds.

@waltworks Any thoughts on the (hopefully thought provoking) ideas I offered?

But back to your point on trust. All money is a figment of our imagination. We just all believe it to exist...and there it is. But people don't really believe in Bitcoin. How do we know? Because the price compared to something we do believe in, the USD, changes radically over time. And that's the fundamental problem. People don't really believe in it.

This is an excellent point, one I discussed recently after reading "Sapiens," which I recommend.

One could take an alternative perspective: Despite the volatility, humanity has continued to believe Bitcoin is worth something. To the best of my very limited knowledge no modern instrument has survived multiple speculative bubble pops and stabilized after each one.

It is a fascinating little experiment. Value tied to adoption rate, adoption rate tied to utility provided. Eventual utility level unknown as it is still in active development.

Speculation mimics actual adoption and so sees surge in price, but provides no sustained utility to the network and eventually get-rich-quick-ers abandon ship. This erodes confidence in btc as volatility increases and corrections/crashes ensue, but those who derive value from the network stick around and it eventually flattens out.